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Good Tax Policies Go Hand In Hand With Good Economic Policies — We Need Both

One of the things I enjoy is hanging out with tax geeks like me who have a similar passion to see Canada’s tax system improved.

Last week, I attended the Canadian Tax Foundation’s Tax Policy Symposium in Toronto, which was attended by roughly 100 in-person tax practitioners, academics and government bureaucrats who work in the tax arena, with more attending virtually.

There were no breakthrough moments or new ideas presented, but there were good reminders that Canada has a lot of room to do better in developing tax policy . And there certainly is an interest in tax reform , but there’s lots of debate on how that should be carried out.

As usual, some of the predictable warnings showed up: “Be careful what you wish for on tax reform … it might just be a way to raise new tax revenues,” and “Tax practitioners shouldn’t be involved in tax reform or the development of tax policy since they are inherently biased.”

Let’s just say I don’t buy the gloomy warning about being careful what you wish for. If a genuine tax reform process was entered into with good objectives — improve fairness, simplify, remove political clutter from the statutes, big-bang corporate and personal reform — and quality people, then cooler heads would prevail and a revised and better system would ultimately result for Canada.

I obviously disagree with the sentiment that tax practitioners should not be involved in the development of tax policy. Despite those who think tax practitioners will always show their bias to the clients they serve, believe it or not, most tax practitioners want to share their frontline experience and offer suggestions for a better Canada.

Obvious comments were also expressed about how it would be challenging for any minority government to make tax reform a priority. I don’t disagree with that.

The last time Canada had a comprehensive tax review was from the Royal Commission on Taxation convened by prime minister John Diefenbaker in 1962. After four long years, it finally released its voluminous report, complete with many recommendations, in 1966.

The new government of the day (since Diefenbaker’s Conservatives were defeated in the general election of 1963) did not agree with many of the recommendations. After much debate, some of the recommendations — including altered ones — were brought into law in 1972. Many of the recommendations were ignored.

Although I’m a purist and would relish the opportunity for Canada to do another Royal Commission on Taxation , it is debatable whether such a process is the best way to institute tax reform. In today’s political environment, four years of study is unrealistic. Any sort of tax reform would need to be much more politically expedient, given that politics and taxation policy are like good food and red wine — they are inextricably linked.

At a minimum, though, even if comprehensive tax reform is not in the immediate future, there are significant improvements that could be made to how new taxation policy is developed. There were good discussions at the symposium about how tax practitioners and other stakeholders could be brought into the development much earlier rather than when the policy is almost fully baked. I agree.

While the government has a distinct advantage in developing taxation policy, since it has immediate access to data that most others do not, many bureaucrats do not have frontline experience or if they do, it has been years since they did. Taking advantage of practitioner experience in the development of taxation policy seems like an obviously good strategy to me. But, as mentioned above, perhaps I’m biased.

There were also good reminders about how other countries — such as the United Kingdom, Australia and New Zealand — develop taxation policy, but those three countries are much more inclusive with stakeholders when developing policy.

There were conversations about the possibility of developing a new independent tax policy body that would, in some way, report to the government. The new body would comprise various stakeholders, not just government bureaucrats. Again, this is not a new idea and many, including me, have advocated for such a body over the years.

Obviously, the devil is in the details about how the body would be comprised, who it would report to, what “teeth” it would have, etc. Conceptually, though, I like the idea since it might have the potential to develop much better taxation policy from the start and work with the government of the day in the implementation of such policy introduction.

Overall, it is disappointing how little interest there is from the average Canadian in trying to appreciate the importance of good taxation policy. I get it — there are far more exciting things to follow, such as Taylor Swift’s tour schedule — but tax policy affects Canadians far more than any celebrity headline. When someone understands how taxation impacts their life in a material way, the engagement should be higher.

Taxation policy may never be exciting and is rarely a voting issue, but it is the foundation of economic growth, fairness and trust in government. Canadians deserve a system that respects their contributions, not one built for political convenience. Tax reform, or changing how taxation policy is developed, won’t be easy, but neither was building a country.

As investor John Ruffolo bluntly put it, “Tax policy does not stimulate prosperity; it only gets in the way.” He’s right, especially the mess that our current tax system is.

If bold, comprehensive reform is politically unrealistic today , then let’s at least demand a far more inclusive process in the development of new policy. Bring practitioners, academics and other stakeholders into the room early before policy is baked, not after. Other countries have learned that stakeholder engagement doesn’t compromise quality; it can strengthen it. There’s no reason Canada can’t do the same.

Good tax policy is required for good economic policy. Right now, Canada has neither.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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Good Tax Policies Go Hand In Hand With Good Economic Policies — We Need Both

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